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Japan’s central bank is set to launch a pilot for a digital yen in the first quarter, according to Japan’s public broadcaster, NHK.
In the first phase of the pilot test, the Bank of Japan (BoJ) will work with private businesses to test the basic functions of the central bank digital currency (CBDC). The tests will include the issuance and circulation details of the digital yen. The first phase is set to last for about one year, NHK reported on February 19, 2021.
The BoJ said it would not issue a digital yen in the near future but would continue to conduct research and tests, as several major central banks in the world move closer to the issuance of CBDC.
The Japanese central bank might issue a digital yen if cash use decreases in Japan, it said in a report in October. For the time being, it is unlikely that the cash in circulation would drop significantly,” the BoJ said. “If, however, this should become the case, and if private digital money will not substitute for the functions of cash sufficiently, the bank might provide general-purpose CBDC as a payment instrument alongside cash.”
As long as there is public demand for cash, the bank will stay committed to supplying it,” the BoJ said. In July 2020, the BoJ revealed in a research paper that it would commence a proof-of-concept process to study the feasibility of a digital yen. The research highlighted two major hurdles for a CBDC in Japan, universal access and resilience.
The BoJ has already conducted some technical and legal research as preparation for possible future CBDC issuance. The digital yen should have many equivalent functions to cash, the research paper said. “It must be a method that anyone can use securely at anytime and anywhere.”
To ensure universal access, terminals used to make transactions or fund transfers cannot be confined to mobile phones, as there are people who do not own such devices. Meanwhile, the digital yen should also support offline transactions to ensure resilience, the report said.
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